LIBOR Lawsuits To Follow

After the LIEBOR scandal and its fallout, its inevitable that somebody somewhere whats to sue. That is what happens when you realize you have been in a rigged game and potentially we are talking a massive number of lawsuits when you look at the US mortgage industry alone.

The second Barclays announced its $450 million Libor settlement, it was all over – the lawyers smelled not only blood, but what may be the biggest plaintiff feeding frenzy of all time. Which is why it was only a matter of time: “State attorneys general are jumping into the widening scandal over whether banks tried to manipulate benchmark international lending rates, a move that could open a new front against the top global banks. A handful of state attorneys general said they are looking into whether they have jurisdiction over the banks, and are starting preliminary discussions to determine what kind of impact the conduct involving the Libor rate may have had in their states.”

Lawyers for several states have had early discussions about whether they might pool investigative resources and launch a broader, multi-state effort, but no formal consortium has been established yet, people familiar with the discussions said. New York might be expected to lead such an effort, since most of the banks’ U.S. operations are based there. A spokesman for the New York attorney general declined comment on whether the issue is being looked at.

Some municipalities, including the city of Baltimore, and funds including the Frankfurt-based Metzler Investment GmbH, which manages 47 billion euros ($59 billion) in assets, have already sued more than a dozen banks, arguing they were bilked of potentially billions of dollars.

There are at least 900,000 outstanding US home loans indexed to Libor that were originated from 2005 to 2009, the period the key lending gauge may have been rigged, investigators have said. Those mortgages carry an unpaid principal balance of $275bn, according to the Office of the Comptroller of the Currency, a bank regulator.

Ultimately, it’s the FED that may get all the attention.

The biggest irony is that the torrent of upcoming suits will be in effect targeting none other than the Fed. Because while banks which all were massively levered to even a one basis point move in Libor were very sensitive to the smallest variations in 3 month USD libor, end-clients who did not have this leverage were far less impaired. But that doesn’t matter: after all the same clients were impaired through gross borderline criminal negligence which is all that matters in a court of law (assuming the honorable judge John Roberts is not presiding pro hac vice). Thus the entity that will be sued by proxy is the Federal Reserve, whose Federal Funds rate is really the setter for the baseline Libor rate.